2016 (2) TMI 1091 - AT - Income Tax

Tribunal Grants Registration under Income Tax Act, Emphasizes Charitable Intent

The Tribunal allowed the appeal, granting the assessee registration under section 12AA of the Income Tax Act. The Tribunal held that the rejection of ... Rejecting application for the registration u/s 12AA - genuineness of donation and unsecured loans - Held that:- The genuineness of loans taken and the donation received are matters to be examined during the assessment proceedings after grant of registration and necessary action relating to the same can be taken during the assessment proceeding for which there are specific provision of law in this regard. It must be remembered that the purpose of granting registration under section 12AA of the Income Tax Act is only to ensure that the assessee society has been formed for the purpose of carrying out charitable activity and is also actually carrying out the same so as to make it eligible to claim exemption under section 11 of the Act. As long as the said objects of an assessee society are found to be charitable and genuine and as long as the assessee society is carrying out the said objectives genuinely the registration under section 12AA cannot be denied. In the present case we find that the assessee society came into existence on 05/08/2010, for setting up educational institutes and other charitable purpose and acquired land for setting up a Nursery School on 31/07/2013. On 21/07/2014 it paid fees for approval of its construction plan on the impugned land, to the concerned authority. It is evident therefore that the assessee society was in the process of setting up educational institution and as held by the jurisdictional High Court, in such circumstances it could not be denied registration u/s 12AA for not carrying out any charitable activity. - Decided in favour of assessee. Issues Involved:1. Rejection of registration under section 12AA of the Income Tax Act.2. Genuineness of unsecured loans and general donations.3. Interpretation of charitable activities and objects of the Trust.4. Examination of the genuineness of activities and objects of the Trust.Issue-wise Detailed Analysis:1. Rejection of Registration under Section 12AA:The primary issue in this appeal is the refusal of registration under section 12AA of the Income Tax Act. The Ld. CIT-II, Agra, rejected the application for registration on the grounds that the assessee society raised funds through donations and unsecured loans, which were deemed dubious and a means to funnel unaccounted income. The CIT also noted that the society had not carried out any significant charitable activities since its inception.2. Genuineness of Unsecured Loans and General Donations:The Ld. CIT found that the society received donations totaling Rs. 33,69,900 in cash, none exceeding Rs. 20,000, and unsecured loans amounting to Rs. 39,50,000. The CIT's enquiry revealed incomplete or vague details of donors and unsecured loans, leading to the conclusion that these funds were not genuine. The CIT held that the unsecured loans were a device to channel unaccounted money of the trustees into the society.3. Interpretation of Charitable Activities and Objects of the Trust:The CIT examined the objects of the society, which included setting up educational institutes, distributing educational items to poor students, environmental conservation, and providing medical assistance. These objects were found to be charitable as per section 2(15) of the Act. However, the CIT doubted the genuineness of the society's activities due to the dubious nature of its funding sources.4. Examination of the Genuineness of Activities and Objects of the Trust:The Tribunal held that the genuineness of donations and unsecured loans should not impact the assessment of the society's charitable activities. The Tribunal emphasized that the purpose of granting registration under section 12AA is to ensure the society is formed for charitable purposes and is carrying out such activities. The Tribunal noted that the society had purchased land for a nursery school and obtained necessary approvals, indicating its intent to carry out charitable activities.Conclusion:The Tribunal concluded that the CIT erred in refusing registration based on the genuineness of donations and unsecured loans. The Tribunal cited the Hon'ble Allahabad High Court's decision in CIT vs. Red Rose School, which limits the scope of the CIT's inquiry to the genuineness of the objects and activities of the trust. The Tribunal also referred to the jurisdictional High Court's decision in Hardayal Charitable and Educational Trust vs. CIT, which held that registration cannot be denied solely because the trust has not commenced activities.Order:The Tribunal set aside the order of the Ld. CIT and directed that the assessee be granted registration under section 12AA. The appeal of the assessee was allowed.Result:The appeal was allowed, and the assessee was granted registration under section 12AA.